CMA Study Group

1D Step-down allocation method

  • 1.  1D Step-down allocation method

    Posted 25 days ago
    Hello everyone,

    I get from the material that the Step-down method will start to allocate the cost of the service department that provides more percentage of its service to other service departments.

    Take the following example. Could anyone please tell me how calculation should be made to choose the first service cost to allocate?

    Service Dept  Operating Dept  Total
    Maintain Admin 1 2
    Costs $8,000 $4,000 $32,000 $36,000 $80,000
    Machine-hours used          1,000         2,000 1,500 2,500         7,000
    Number of Employees             250            150 150 150            700
    1st way
    %Machine-hours used 14% 29% 21% 36% 100%
    %Number of Employees 36% 21% 21% 21% 100%
    → Admin cost to be allocated firstly as Admin dept. ("AD") provides more %service (36%) to Maintenance dept. ("MD"). than MD provides (29%) to AD
    2nd way
    %Machine-hours used 33% 33% 33% 100%
    %Number of Employees 45% 27% 27% 100%
    → Admin cost to be allocated firstly as Admin dept. provides more %service (45%) to Maintenance dept. than MD provides (33%) to AD
    3rd way
    %Machine-hours used 33% 67% 100%
    %Number of Employees 63% 38% 100%
    → Maintenance cost to be allocated firstly as Maintenance dept. provides more %service (67%) to Admin dept. than AD provides (63%) to MD

    Thank you in advance,


  • 2.  RE: 1D Step-down allocation method

    Posted 25 days ago
    sorry, i added $3200 instead of $32000

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    PRABHU KATTARAMALA
    Controller
    IRUNGATTUKOTTAI TN
    India
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  • 3.  RE: 1D Step-down allocation method

    Posted 24 days ago
    I think I got the answer to my question. In short, the 2nd way that I have shown above is the preferred method to define the service department to allocate first

    Please watch the video from 0:33
    https://www.youtube.com/watch?v=e7a4VYtbJ1M

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    Phuc
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